Loans Receivable And Allowance For Loan Losses

3 Months Ended

Dec. 31, 2023

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Loans Receivable And Allowance For Loan Losses

LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable by portfolio segment consisted of the following at December 31, 2023 and September 30, 2023 (dollars in thousands):


	December 31, 2023				September 30, 2023
	Amount		Percent		Amount		Percent
Mortgage loans:
One- to four-family (1)	$	263,122	18.0	%	$	253,227	17.8	%
Multi-family	147,321		10.1		127,176		8.9
Commercial	579,038		39.6		568,265		39.8
Construction - custom and owner/builder	134,878		9.2		129,699		9.1
Construction - speculative one- to four-family	17,609		1.2		17,099		1.2
Construction - commercial	36,702		2.5		51,064		3.6
Construction - multi-family	57,019		3.9		57,140		4.0
Construction - land development	18,878		1.3		18,841		1.3
Land	28,697		2.0		26,726		1.9
Total mortgage loans	1,283,264		87.8		1,249,237		87.6

Consumer loans:
Home equity and second mortgage	39,403		2.7		38,281		2.7
Other	2,926		0.2		2,772		0.2
Total consumer loans	42,329		2.9		41,053		2.9

Commercial loans:
Commercial business	136,942		9.3		135,802		9.5
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	423		—		466		—
Total commercial loans	137,365		9.3		136,268		9.5

Total loans receivable	1,462,958		100.0	%	1,426,558		100.0	%
Less:
Undisbursed portion of construction loans in process (LIP")	104,683				103,194
Deferred loan origination fees, net	5,337				5,242
ACL	16,655				15,817
Subtotal	126,675				124,253
Loans receivable, net	$	1,336,283			$	1,302,305
_____________________________
(1) Does not include one- to four-family loans held for sale totaling $1,425 and $400 at December 31, 2023 and September 30, 2023, respectively.

Loans receivable at December 31, 2023 and September 30, 2023 are reported net of unamortized discounts totaling $182,000 and $192,000, respectively.

Credit Quality Indicators

The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential. The Company categorizes loans into risk grade categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors such as the estimated fair value of the collateral. The Company uses the following definitions for credit risk ratings as part of the on-going monitoring of the credit quality of its loan portfolio:

Pass: Pass loans are defined as those loans that meet acceptable quality underwriting standards.

Watch: Watch loans are defined as those loans that still exhibit acceptable quality, but have some concerns that justify greater attention. If these concerns are not corrected, a potential for further adverse categorization exists. These concerns could relate to a specific condition peculiar to the borrower, its industry segment or the general economic environment.

Special Mention: Special mention loans are defined as those loans deemed by management to have some potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the loan.

Substandard: Substandard loans are defined as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. If the weakness or weaknesses are not corrected, there is the distinct possibility that some loss will be sustained.

Doubtful: Loans in this classification have the weaknesses of substandard loans with the additional characteristic that the weaknesses make the collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. At December 31, 2023 and September 30, 2023, there were no loans classified as doubtful.

Loss: Loans in this classification are considered uncollectible and of such little value that continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. At December 31, 2023 and September 30, 2023, there were no loans classified as loss.

The following table sets forth the Company's loan portfolio at December 31, 2023 by risk attribute and year of origination as well as current period gross charge-offs (dollars in thousands):

Impaired Loans

Prior to the adoption of CECL, a loan was considered impaired when it was probable that the Company would be unable to collect all amounts (principal and interest) when due according to the original contractual terms of the loan agreement. Smaller balance homogeneous loans, such as residential mortgage loans and consumer loans, may be collectively evaluated for impairment. When a loan was identified as being impaired, the amount of the impairment was measured by using discounted cash flows, except when, as an alternative, the current estimated fair value of the collateral (reduced by estimated costs to sell, if applicable) or observable market price was used. The valuation of real estate collateral is subjective in nature and may be adjusted in future periods because of changes in economic conditions. Management considers third-party appraisals, as well as independent fair market value assessments from realtors or persons involved in selling real estate, in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. Accordingly, the amounts of any such potential changes and any related adjustments are generally recorded at the time that such information is received. When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest and net deferred loan origination fees or costs), impairment is recognized by creating or adjusting an allocation of the allowance for credit losses, and uncollected accrued interest is reversed against interest income. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance. The categories of non-accrual loans and impaired loans overlap, although they are not identical.

The following table is a summary of information related to impaired loans by portfolio segment prior to the adoption of CECL as of September 30, 2023 and for the year then ended (dollars in thousands):


	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		Year to Date ("YTD") Average Recorded Investment (1)		YTD Interest Income Recognized (1)		YTD Cash Basis Interest Income Recognized (1)
With no related allowance recorded:
Mortgage loans:
One- to four-family	$	368	$	412	$	—	$	378	$	29	$	29

Commercial	2,973		2,973		—		2,987		167		129




Land	—		—		—		297		5		4
Consumer loans:
Home equity and second mortgage	382		382		—		390		12		10
Other	—		—		—		1		—		—
Commercial business loans	41		90		—		49		—		—
Subtotal	3,764		3,857		—		4,102		213		172

With an allowance recorded:












Commercial business loans	245		245		123		247		—		—
Subtotal	245		245		123		247		—		—

Total:
Mortgage loans:
One- to four-family	368		412		—		378		29		29

Commercial	2,973		2,973		—		2,987		167		129




Land	—		—		—		297		5		4
Consumer loans:
Home equity and second mortgage	382		382		—		390		12		10
Other	—		—		—		1		—		—
Commercial business loans	286		335		123		296		—		—
Total	$	4,009	$	4,102	$	123	$	4,349	$	213	$	172

______________________________________________

(1)For the year ended September 30, 2023.


	Recorded Investment		Unpaid Principal Balance (Loan Balance Plus Charge Off)		Related Allowance		YTD Average Recorded Investment (1)		YTD Interest Income Recognized (1)		YTD Cash Basis Interest Income Recognized (1)
With no related allowance recorded:
Mortgage loans:
One- to four-family	$	383	$	427	$	—	$	386	$	7	$	7

Commercial	2,980		2,980		—		2,984		33		42




Land	425		425		—		438		—		—
Consumer loans:
Home equity and second mortgage	405		405		—		400		2		3
Other	2		2		—		3		—		—
Commercial business loans	55		103		—		57		—		—
Subtotal	4,250		4,342		—		4,268		42		52

With an allowance recorded:












Commercial business loans	249		249		127		249		—		—
Subtotal	249		249		127		249		—		—
Total
Mortgage loans:
One- to four-family	383		427		—		386		7		7

Commercial	2,980		2,980		—		2,984		33		42




Land	425		425		—		438		—		—
Consumer loans:
Home equity and second mortgage	405		405		—		400		2		3
Other	2		2		—		3		—		—
Commercial business loans	304		352		127		306		—		—
Total	$	4,499	$	4,591	$	127	$	4,517	$	42	$	52

_____________________________________________

(1) For the three months ended December 31, 2022.

Troubled debt restructurings ("TDRs")

On October 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments - Credit Losses (ASU 2016-13). This ASU eliminated the accounting guidance for TDR loans for creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower experiences financial difficulty. No loans to borrowers experiencing financial difficulty were modified in the three months ended December 31, 2023. At December 31, 2022, the Company had $2.58 million of TDRs, all of which were paying as agreed. There were no new TDRs for the three months ended December 31, 2022.

In accordance with the Company's policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four or five consecutive months. However, charge-off's are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential source of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly charged off.